Wednesday, August 20, 2014

There is something a bit surreal about this article from Deutsche Welle. On one hand, it acknowledges that the German carmakers are not happy about the threat that sanctions directed at their marketing efforts in Russia would pose. On the other hand, this article skimps on the explanations for why the carmakers are dreading this looming disaster. So let me try.

Developing a market for expensive cars is a daunting task. Even if a company like Mercedes Benz shows up with a century's old reputation for excellence, they must still convince their new potential customers that their brilliant cars will operate under Russian conditions (will they start at -40°C? etc.)

Selling cars doesn't just mean showing up with a few transporters full of newly-minted vehicles, you must also show up with a parts supply, a local base of operations, and methods for training new mechanics.

Germans selling cars to Russians?—lot of history between those two countries much of it unspeakably brutal.

So while having a world-class product opens many doors, it is abundantly clear that the German carmakers have gone to great lengths and put in a ton of work to establish their foothold in Russia. In fact, Volkswagen has gone so far as to open a Russian factory—which is an even greater commitment to expanding their markets (of course, one of the reasons to do this means they would be able to skirt import bans like the ones being proposed.)

DW seems to imply that German car makers are not all that threatened with permanent damage by a short-lived Russian import ban. They mention that Russian is threatening to put together a consortium of truck and tank manufacturers to build government-level limousines. (Implication—the Russians are not seriously going to take on the spectacular Mercedes S-class with truck makers.) They mention that Asia could fill the gap the Germans would leave behind but then cite a Chinese and South Korean company no one has ever heard of. (Whistling past the graveyard.)

One should NEVER underestimate the Asians. For example, Lexus of Russia has just had it's two best years ever. In the 1990s, Lexus showed up and just blew Mercedes-Benz out of the American market for over a decade. It turns out that Mercedes' world-class performance is really only an issue on those meticulously maintained autobahns. Those kind of roads do not exist in USA and they certainly do not exist in Russia. In those markets, the Lexus advantages of build excellence and reliability are MUCH more important than a car's road feel at 250 km per hour. Lexus customers tend to be very loyal so if Mercedes loses some of their customers to them, getting them back could prove nearly impossible.

I am quite certain that there is genuine anger in the boardrooms of the German carmakers. Competing in the car business is already insanely difficult. I would imagine that no one would be at all happy if some two-bit pol threatened all that hard work over a dispute between the USA and Russian governments relating to the political make-up of the Ukrainian government. If it happens, it would be yet another example of massive Producer Class damage caused by Leisure Class stupidity.

Russia mulls import ban on cars from the West

hg/nz (Reuters, dpa) 18.08.2014

Russia may expand retaliatory sanctions by imposing a ban on Western car imports. German carmakers could be severely hit by such a measure and are keeping their fingers crossed it will not happen.

Moscow-based daily newspaper Vedomosti reported Monday that a ban on Western car imports cannot be ruled out, if the EU and the US decide to launch even more sanctions against Russia.

Vedomosti reported that such a ban had earlier been among a package of proposals put before President Vladimir Putin. He rejected the idea and ordered a ban on food imports instead, saying, however, that car import restrictions remained an option in the event that Western nations extended their sanctions on Russia.

The newspaper said the proposed ban would not affect foreign companies that produce cars for the Russian market in factories inside Russia. However, some high-end brands, including Daimler's Mercedes, are produced outside the country, and so would be subject to the ban.

Revival of Russia's Chaika limousine?

"We're seriously concerned," said Jörg Schreiber, the chairman of the Automobile Manufacturers Committee of the Association of European Businesses. "We hope Russia will think twice before taking any such measures, as they would hurt manufacturers."

Imports accounted for 27 percent of passenger car sales in Russia in the first half of 2014, while for trucks and buses the percentages were 46 percent and 13 percent respectively. A ban on Western vehicles could benefit Asian carmakers such as China's Great Wall Motors and Chery Automobile, or South Korea's SsangYong Motors.

According to German media reports, Russian Prime Minister Dmitry Medvedev has issued an order saying that imports of Western limousines for high-ranking government officials must be severely restricted.

At the same time, the Russian leadership has asked domestic carmakers such as Sollers, Kamaz and GAZ to work together to design a suitable high-end limousine for members of the government, in a collaborative effort called Project Cortege. According to Russian media reports, the project will benefit from engineering input from German carmaker Porsche, a unit of Volkswagen Group.

For now, however, Russian President Putin and his entourage continue to make do with stretched and armoured Mercedes-Benz S-class sedans to fulfill their road transportation requirements. more